Sunday, December 7, 2014

The New York State Department of Financial Services recently issued the attached regulations relating the debt collection practices in the State.

The new regulations apply to “any person engaged in a business the principal purpose of which is the collection of any debts, or any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another,” including without limitation debt buyers. The new regulations also contain exceptions similar to the FDCPA, including among other things as to debts not in default when obtained.

Among other things, the new regulations require:

(1) early disclosures similar to those under 15 USC 1692g, but requiring extensive additional information and a specific notice;

(2) clear and conspicuous disclosures as to debts the debt collector “knows or has reason to know” are time-barred;

(3) specific information as to charged off debts to substantiate the debt when the consumer disputes it;

(4) specific written disclosures as to payment plans and other debt settlement agreements; and

(5) specific disclosures as to email communications with consumers.

The new regulations were promulgated through the Department of Financial Services’ first use of so-called “gap authority” that was included in the 2011 law creating the Department. Violations are punishable by civil monetary penalties, and in addition the Department of Financial Services also has the authority to impose civil penalties on collectors that violate the state and federal Fair Debt Collection Practices Acts.

The new regulations are scheduled to become effective 90 days after publication in the State Register, except that section 1.2(b) (early disclosure requirements) and section 1.4 (disclosure and substantiation of “charged off” debts) are scheduled to become effective 270 days after publication in the State Register. The new regulations were published in the State Register on Dec. 3, 2014.

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

The U.S. District Court for the Eastern District of New York recently granted a debt collector’s motion for summary judgment, holding that, as the federal Fair Debt Collection Practices Act “is clearly out of touch with modern technology,” a debt collector does not violate the FDCPA if it leaves a message for a debtor on a residential voicemail system and the message, without the debt collector’s knowledge or intent, is overheard by a third party who returns the call and learns of the identity of the intended recipient of the voicemail message. So long as the debt collector acts with ‘care and caution’ to protect the consumer’s privacy, such communications do not violate section 1692c(b) of the FDCPA.”

In this FDCPA action, where the material facts were not in dispute, the debtor owed money to a mobile telecom provider, who retained the debt collector to collect the debt. The debt collector left the following voicemail for the debtor on his residential voicemail system: “We have an urgent message from [the debt collector]. This is a call from a debt collector. Please call [telephone number].”

Rather than being initially retrieved by the debtor, the debtor’s son heard the message and returned the debt collector’s telephone call. During the very brief conversation that followed, the debt collector’s representative asked the as yet unidentified caller for his telephone number, which he provided. The debt collector’s representative then asked whether the caller was the debtor by using the debtor’s first name. Once the caller advised that he was not the debtor, the debt collector’s representative immediately advised that they would remove the caller’s number from their “list” and ended the call.

Thereafter, the subject litigation ensued, with the debtor contending that the “[debt collector’s] voicemail and telephone conversation with his son violated [section 1692c(b) of] the FDCPA.” The debt collector, in turn, argued that “it never communicated that the debtor owed a debt to a third party in the voicemail or telephone call and therefore did not violate the FDCPA.”

As you may recall, section 1692c(b) of the FDCPA prohibits a debt collector from “communicat[ing], in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.” 15 U.S.C. § 1692c(b).

As a threshold matter, it was clear to the district court that the debtor’s son did not fit within the definition of any of the enumerated exceptions to third party communications as set forth in § 1692c(b). Nevertheless, the district court rejected the debtor’s argument that the subject communications violated the statute.

Noting that the statute “remains largely unchanged from its enactment in 1977,” the district court recognized that the FDCPA does not address whether voicemail messages can be left for debtors, and what the permissible content is for such messages. Although other courts have addressed the issue of voicemail messages under the FDCPA (see, e.g., Marisco v. NCO Fin. Sys., Inc., 946 F. Supp. 2d 287 (E.D.N.Y. 2013); Foti v. NCO Fin. Sys., Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006)), the district court distinguished those cases due to them not involving a return call from an unintended third party who overheard the message.

The district court then turned to a wealth of commentary within the Federal Trade Commission, Consumer Financial Protection Bureau, the United States Government Accountability Office and Congress regarding the shortcomings of the FDCPA as it relates to the use of voicemails.

Based upon its analysis of this commentary, the district court reasoned that, as the “FDCPA is clearly out of touch with modern communication technology,” rather than protecting consumers from abusive debt collection practices, as the statute was intended to do, and held that a violation under the subject set of facts would “place an undue restriction on an ethical debt collector” and leave consumers with the undesirable alternative of “harassing hang-up phone calls that are a nuisance to [consumers] and ineffective for the debt collector.”

In conclusion, the district court declined to “delineate the specific requirements debt collectors must adhere to when utilizing voicemail technology,” yet was confident that the communications at issue were not “abusive” in nature as the debt collector “acted with care and caution to protect the debtor’s privacy.”

The court stated that it would “def[y] common sense and the purpose of the FDCPA” to find the subject communications violative of the statute.

Accordingly, the district court granted the debt collector’s motion for summary judgment.

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

PLEASE NOTE:

The editor and sponsoring law firm of this blog represent and serve banks, lenders, loan buyers, loan servicers, debt collectors, and other financial services companies. We do not represent consumers.

Please note that any communications or information obtained may be provided to our clients, including for the purpose of debt collection.

The information in this blog and related updates is general in nature, and should not be considered legal advice.

Legal advice requires a full and complete understanding of a particular situation. Your situation may involve material facts that prevent the direct application of the information in this blog and related updates.

You will not become a client of the editor or sponsoring law firm simply by reading this blog. In order to become a client of the editor or sponsoring law firm, the editor or sponsoring law firm must agree to represent you in writing. Until we agree to represent you in writing, we are not prevented from representing any other party.

Until you are a client of the editor or sponsoring law firm, any communications with us will not be confidential.

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.